Broker Disclosure of Compensation

An Open Letter to the Insurance Industry

March 26, 2007

For the past two years, several activist state Attorneys General have been attempting to use the courts to dictate exactly how insurers will compensate their producers.

That’s not fair to producers, and it is not fair to carriers.

Several carriers who have entered into supposedly “voluntary” settlement agreements were directed to change their compensation systems to eliminate contingent commissions. But there is nothing voluntary about this, and the changes are costing these carriers significant dollars.

Adding to the unfairness to these carriers, some settlement agreements contain a provision requiring them to support laws and regulations to ban contingent commissions.

In effect, they are being required to sign away their First Amendment rights and support political positions as dictated by the Attorneys General!

The settlement process is designed to make any carrier not being forced by a settlement agreement to make changes, appear to be compensating their insurance producers in “the wrong way.”

Our carriers’ producer compensation systems were and are legal, effective, and supportive of good competitive pricing dynamics. Insurance carriers, just as any business, must have the freedom to structure their compensation systems as they see fit. In short, in a manner that best enables growth and profitability.

Efforts to ban contingent commissions, yearly bonuses, or any form of incentive compensation must be seen for what they are: anti-competitive attacks on how our American Free Enterprise System operates. Today, insurance compensation systems are under attack. Which industries will be next?

Contrary to what some may say, independent insurance agents do not believe that changes in compensation structures are in any way the “right thing” to do.

The members of PIA are fervent supporters of the American Free Enterprise System. On this principle, there can be no compromise. That is why we reaffirm our position in defense of contingent commissions, a system of compensation that is legal, ethical and has served our industry well for decades, as it has served businesses throughout our economy well.

PIA will continue to fight for the right of carriers to reward their independent agent producers with contingent commissions as part of their compensation. And PIA will continue to fight for the right of independent agents to receive such compensation. We will continue this fight in the courts, through the state legislatures and in the court of public opinion.